Ideas sought on Islamic finance review

The federal government’s indepen­dent adviser on tax laws has released a discussion paper on its review of the tax treatment of Islamic finance.

The government asked the Board of Taxation this year to investigate obstacles to the development of Islamic financial products and to recommend necessary measures.

“We would not be recommending new tax laws to suit sharia," board chairman
Dick Warburton
said. “We’re looking to see whether we can work within the existing tax laws."

Islamic financial products use fewer risk-hedging techniques and have different structures to those of conventional banks because of a sharia-imposed ban on gambling and interest. Sharia-compliant products include an Islamic bond, the sukuk.

Mr Warburton said the review would focus on areas in which there could be double taxation and on issues such as the taxation of hire purchase and finance leases.

“We’re also looking at what other countries are doing," he said.

Then-assistant treasurer
Nick Sherry
said when the government requested the review that it wanted to foster an open financial system and recognised the potential for job and wealth creation.

The global market for Islamic financial services amounted to $951 billion in 2008, up from mid-1990s levels of $150 billion, according to the discussion paper. The document outlines the opportunities for Australia, including attracting Islamic investment in assets, the establishment of Islamic banks and the provision of Islamic products by Australian-based banks.

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Institute of Chartered Accountants tax counsel Yasser El-Ansary said the review was a key link in building a regional financial services hub in Australia.

“We’re already behind the world on this, so if we don’t capitalise on the opportunity to attract Islamic investment very soon, then our chances of being a regional financial hub are significantly diminished," Mr El-Ansary said.